Problem $18-4$ WACC

Use the following information:

Debt: $$65,000,000$ book value outstanding. The debt is trading at $86\%$ of book value. The yield to maturity is $9\%.$

Equity: $1,500,000$ shares selling at $$32$ per share. Assume the expected rate of return on Federated's stock is $18\%.$

Taxes: Federated's marginal tax rate is $T_c=0\mathrm{.}21.$

Suppose Federated Junkyards decides to move to a more conservative debt policy. A year later, its debt ratio is down to $17\mathrm{.}50\%($D$)V=$

$0\mathrm{.}1750).$ The pre$-$tax cost of debt has dropped to $8\mathrm{.}6\%.$ The company's business risk, opportunity cost of capital, and tax rate have not

changed.

Use the three$-$step procedure to calculate Federated's WACC under these new assumptions.

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to $2$ decimal places.